UPDATE 2-Dublin's wary cuts policy wins IMF-EU applause

* Ireland's 2012 deficit goal still 8.6 pct of GDP

* Noonan sees 2012 adjustment of under 4 bln euros

* Ireland developing action plan for permanent tsb

By Padraic Halpin and Conor Humphries

DUBLIN, Oct 20 Ireland's government won
enthusiastic backing from its EU-IMF creditors on Thursday for
its policy of keeping austerity measures within bounds in order
to protect the country's fragile economic recovery.

Ireland is meeting its targets under an 85 billion euros
bailout but has faced calls from its own fiscal watchdog to
accelerate cutbacks and tax hikes to reassure investors spooked
by the Greek crisis that Dublin's debts are sustainable.

"If you go too far in frontloading the adjustment you take
demand out of the economy," Finance Minister Michael Noonan told
a news conference on Thursday after officials from the EC, the
ECB and the IMF completed the latest quarterly review of
Ireland's rescue package.

"Economists can look at things in narrow enough terms ... we
have to look at things like social cohesion," he said.

Ireland's so-called troika of lenders has endorsed an
existing plan to get the budget deficit, estimated to be around
10 percent of GDP this year, down to 8.6 percent next year.

Ireland was left with the worst deficit in the
industrialised world after a property crash and banking crisis
sent its once lauded economy plunging into recession.

"One of the things that investors tell me they look for in
Ireland is.... Ireland's ability to create growth," said Ajai
Chopra, the IMF mission chief.

Despite weaker growth forecasts for 2012, Noonan expects the
size of next year's fiscal adjustment, which will be unveiled in
early November, to be under four billion euros and signalled he
would not raise income taxes or cut welfare rates.

A MEETING OF MINDS

With fellow bailout recipients Greece and Portugal
struggling to meet their targets, Ireland is positioning itself
as Europe's recovery story and the troika officials were
effusive in their praise of Dublin's adherence to its plan.

"There is a very significant meeting of minds on the
objectives and the way to meet those objectives," Chopra said.

But Dublin still wants to renegotiate aspects of its
programme, including the troika's insistence that any
privatisation proceeds be used to pay down debt rather than
stoke economic growth.

"That is a position that they have not formally moved from
... but in principle they understand our position and are
willing to engage," Minister for Public Expenditure Brendan
Howlin said.

Ireland is also trying to win the troika around to
supporting its wish to try to tap the euro zone's rescue fund to
reduce the cost of financing its bank bailouts. However, any
agreement on such a proposal would rest with euro zone leaders.

Currently, European leaders are split on how to strengthen
the bloc's bailout fund.

Ireland has spent nearly 63 billion euros in state funds
shoring up its banks and Noonan said he expected the country's
lenders would have enough capital to withstand any new capital
requirements agreed by Europe.

Chopra said Irish banks could do more to improve the
transparency of their balance sheets, particularly on
provisioning practices and loss recognition.

Question marks still surround the future of permanent tsb
, one of Ireland's largest mortgage providers, laid low
by its exposure to costly residential home loans that track the
ECB base rate.

Noonan said Ireland had agreed to develop an "action plan"
for the lender. Noonan is currently considering bids for Irish
Life, permanent tsb's life insurance arm, whose cash reserves
have helped bulk up the lender.

A failure to sell Irish Life, which has an embedded value of
1.6 billion euros, would mean the government has to put 1.1
billion euros into permanent tsb, on top of 2.7 billion euros
already injected.

MEDICAL COSTS

In addition to tackling its fiscal deficit and shrinking its
banking sector, Ireland's bailout commits it to open up
sheltered sectors of the economy to stoke growth.

Ireland has published legislation to reform its legal
industry and make wage agreements more flexible but Istvan
Szekely, the EC's country director for Ireland, said more needed
to be done to cut medical costs.

A trip to the doctor's surgery in Ireland can cost around 60
euros.

"I am living in Brussels which is not at all a cheap place
to live... I pay half the price you pay when I go to see a GP.
Half," Szekely said.

"There is a long way to go here to improve things. It is
very important."

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